UPDATE 3-Vodafone sales hit as weakness spreads across Europe

* Q3 service revenue misses forecast

* Hit by falls in Germany, Britain, Spain, Italy

* Shares up 2 percent

By Kate Holton

LONDON, Feb 7 Trading at Vodafone
worsened in the third quarter as customers in previously robust
northern Europe joined those in the south by cutting phone
usage, adding impetus to the British group's efforts to cut
costs.

A worse than expected 2.6 percent drop in organic service
revenue in the three months to Dec. 31 marked an acceleration
from the 1.4 percent fall recorded in the second quarter and
showed the intense pressure on the world's second largest mobile
operator.

Shares in Vodafone rose by 1.7 percent however as the group
maintained its outlook for the year and as analysts said the
results were not quite as bad as some had feared after torrid
results from Dutch group KPN and Belgium's Mobistar
earlier this week.

Investors also took strength from the line that the
full-year decline in earnings margins should show an improving
trend, due to cost restructuring and savings programmes.

"Today's early spike in the share price is acknowledgment of
progress being made," said Richard Hunter, head of equities at
Hargreaves Lansdown Stockbrokers. "There is also much to do.

"Plans are afoot to ratchet up the cost efficiency
programme. Meanwhile, the Indian tax case, general regulatory
overhang and the fiercely competitive nature of Vodafone's
industry remain serious headwinds."

Telecoms firms across Europe are struggling with the
macroeconomic pressures at a time when they need to build
networks that offer faster speeds for consumers increasingly
accessing the internet on mobile devices. They are also facing
regulatory changes across the region and fierce competition.

"We expect peer results to show that Vodafone is doing worse
than peers," Bernstein analyst Robin Bienenstock said. "The pace
of decline almost doubled in Europe while (emerging market)
growth fell by about a third."

FIERCE COMPETITION

Vodafone is the first major operator to report its results
for the final three months of the year.

Of its 403 million customers, those in Britain and Germany
cut back on usage to stick within their price plans while fewer
customers signed up to the network, opting for cheaper tariffs.

Telefonica's O2 turned more competitive in Britain
and Deutsche Telekom's T-Mobile upped the pressure in
Germany by offering cheaper deals for smartphone contracts.

The worsening picture in Germany and Britain, which had
previously remained resilient, compounded the ongoing problems
in the big southern European markets of Spain and Italy where
customers have cancelled contracts altogether.

Germany was also hit by regulatory cuts due to changes in
the amount operators can charge each other for connecting and
disconnecting calls, intended to lower costs to consumers.

Overall, revenue was down on an organic basis in Germany by
0.2 percent, down in Britain by 5.2 percent, down in Italy by
13.8 percent and down in Spain by 11.3 percent.

The group has also faced slowing growth in its emerging
markets such as India, where it recorded revenue growth of 9
percent, two percentage points lower than the previous quarter.

"Our results continue to reflect very difficult market
conditions in Europe," Chief Executive Vittorio Colao said. "We
are addressing this through firm actions on cost efficiency, and
continuing to invest in areas of growth potential."

In response the group is increasing its cost-cutting
programme - it is considering cutting its workforce in Spain by
up to a quarter to counter an escalating price war - and it has
rolled out a Vodafone Red price plan in five markets.

The new offering, which has been taken up by 2 million
customers, offers unlimited calls and text messages combined
with data plans for Internet access, to prevent customers using
so-called over-the-top services to message friends for free.

The new plan has contributed to the lower revenue, Colao
told reporters, but he added that this had been expected and
that the new service would increase customer loyalty.

MOSCOW, Jan 14 Big Russian companies raised a
total of $5.7 billion from China in December, ING bank said in a
research note on Thursday, adding that most of the deals were
linked to the energy sector and required a lot of political
work.

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